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Energy Brief for Feb 17.23

by market analysts Stephen Platt and Mike McElroy

Price Overview

The petroleum complex came under pressure, with March crude trading down to a low of 75.06 before attracting short-covering and profit taking ahead of the holiday weekend. The weakness reflected the recognition that supply availability has improved given recent increases in US inventory levels along with ideas the announced production cuts by Russian might not impact availability as much as expected. In addition, supply concerns in Europe eased in response to reports that Kazakhstan will supply 750 tb of crude oil via Russia’s Druzhba pipeline to Germany’s Schwedt refinery, with the potential for additional quantities to be supplied in the future. The refinery is mostly supplied with non-Russian oil. In the background are fears that further rate hikes in the US will derail an economic recovery. Drawdown of secondary inventories built up last year in anticipation of shortages appear to be  favorably impacting availability as well. 

The breakdown in the March WTI has tested support in the 74.50-75.00 area. Although US disappearance has been disappointing of late, we would expect it to pick up as we move closer to the second half of the year. The US economy remains buoyant, which should provide the basis for a recovery in demand, while the Chinese economy appears to be improving. Although higher interest rates pose a threat, we see the market moving toward balance and possibly into a deficit situation on a global level later this year. How large those deficits are will be crucial in determining how high prices can recover, with the 80-82 range remaining key resistance in the near term. 

DTN WTI Crude chart 2.17.23
DTN Nat Gas Daily 2.17.23

Natural Gas

The market continued its struggles to end the week, as an overnight violation of the 2.35 support area on the March contract lead to follow-through selling. An intraday low was reached at 2.22 before prices settled 11.4 cents lower at 2.275. There continues to be a lack of any fundamental reason for prices to go higher, as weather remains warm, production clips along near 98 bcf/d, and in the background European prices reach there lowest level in nearly 2 years. Yesterday’s storage report was disappointing, showing a 100 bcf draw verses estimates near 109. The only bright spot is LNG flows, which have exceeded 13 bcf over the last two sessions, but steady intake at Freeport near 23 percent of capacity has trade again questioning when operations start ramping up. The failure to violate 2.65 this week marks that area as solid resistance, with a settlement through there necessary to have any hope of flushing out short covering. The move through the 2.35 support area and poor close points to a test of 2 dollars in the near future.

The authors of this piece do not currently maintain positions in the commodities mentioned within this report.

Charts Courtesy of DTN Prophet X, EIA, Reuters


Learn more about Stephen Platt here

Learn more about Mike McElroy here

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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